Koninklijke Philips N.V. NY Registry Shares

Welcome to the Royal Philips Third Quarter 2023 Results Conference Call on Monday, October 23rd, 2023. During the call, hosted by Mr. Roy Jacobs, CEO, and Mr. Abhijit Bajacharya, CFO, all participants will be in a listen-only mode. After the introduction, there'll be an opportunity to ask questions. Please note that this call will be recorded and replay will be available on the Investor Relations website of Royal Philips. I will now hand the conference over to Mr. Leandro Mazzoni, Head of Investor Relations. Please go ahead, sir.

Hi, everyone. Welcome to Philips' third quarter 2023 results webcast. I have here with me our CEO, Roy Jacobs, and our CFO, Abhijit Bhattacharya. The press release and slide deck, as well as the deck on the Respironics recall, were published on our Investor Relations website this morning. The replay and full transcript of this webcast will be made available on the website as well. Before we start, I want to draw your attention to our safe harbor statement on screen. You will also find the statement in the presentation published on our investor relations website. In today's call, we will discuss our results as well as the progress on the actions we're taking across different areas to drive performance improvement. I would like to hand over to Roy.

Good morning everyone and welcome to the webcast. Before we go into the numbers, I want to say that our hearts go out to everyone affected by the terrible events ongoing in the Middle East. As of today, I'm thankful to report that all our colleagues based in the region are currently safe. Now starting the key highlight for Q3. we delivered another quarter of improved operational performance, with strong 11% sales growth, doubling of profitability, and strong cash flow. The improvements were across all business segments and all regions, and the result of our ongoing actions to strengthen execution. We're making progress on all our three priorities, enhancing patient safety and quality, striking supply chain reliability, and establishing a simplified, more agile operating model, supporting our productivity and our margins. Completing the Respironics recall remains our highest priority, with the remediation of the sleep therapy devices almost complete. We are in discussions with the FDA on the details of further testing. The litigation investigation by the U.S. DOJ, as well as the discussions on the proposed consent degree, are ongoing without further updates to share. Based upon our improved performance, we are further raising the outlook for both sales and profitability for the full year 2023. Although recognizing uncertainties remain in increasingly volatile geopolitical environment. Our improved performance reinforces the confidence we have in delivering also the next two years of our three years plan to create value with sustainable impact. Onto the financial highlights. The strong comparable sales growth of 11% was driven by 14% growth in diagnosis and treatment, 10% growth in connected care, and 7% in personal health. Our adjusted EBITDA margin was 10.2%, a strong improvement of 540 basis points versus a year ago. Operating cash saw an inflow of 489 million euros. an increase of approximately $170 million versus last year. Order intake, which accounts for around 40% of group sales, was lower in the quarter, mainly due to the comparison base related to the exceptionally high orders in 2021 and 2022, substantially lower in China, and longer order-to-delivery lead times. We continue to see hospital healthcare systems in the U.S. and other mature geographies exhibit cautious buying behavior in the short term, and China is heavily impacted by the government-initiated anti-corruption measures. But I look at the future with confidence. Our order book remains strong. The fundamentals of the markets in which we operate as well as our order funnel are healthy, and our innovation portfolio is strategically positioned to help hospitals address their staffing shortages, enhance productivity, and improve patient outcomes. Let me qualify what I mean with a strong order book. The order book remains around 20% higher than in Q3 2021 when the global supply chain crisis started and will continue to support revenue growth. At the same time, we are implementing the necessary actions to improve order intake by reducing lead times from order to delivery and leveraging our operating model change and our innovations. Based on the flow of orders that are in the pipeline and the visibility we have as of now, we expect to see sequential improvement in order intake in Q4, while there remain the uncertainty and geopolitical volatility we have outlined. Let me provide you with some of the key customer and innovation milestones during the quarter. We signed a 10-year, over 100 million enterprise monitoring as a service and informatics agreement with one of the largest health systems in the U.S., covering 20 hospitals with over 3,000 beds. We expanded our leading image-guided therapy portfolio with the launch of the mobile Sion System 3000, which contains workflow-enhancing features to help alleviate staff shortages faced by many hospitals. We introduced our ambulatory monitoring offering in Japan, combining Philips ePatch Halter monitors with ECG analysis to AI and advanced algorithms. And in personal health, we launched Sonicare DiamondClean 7900 series in China, which debuted as the number one high-end toothbrush on Alibaba's Tmall. We celebrated 100 years of successful presence and collaboration in China, where we are known as Filipo and have a leading position, a strong local team of over 7,000 employees, and an extensive footprint covering manufacturing, innovation, sales, and services. And with that, I would like to give the floor to Abhijit to take us through Q3 in more detail, after which I will come back with the progress on our execution priorities.